CEO.CA Chairman's Briefing

Excluding significant items, first quarter loss per common share of $0.01 ⁽¹⁾

(All dollar amounts are stated in Canadian dollars unless otherwise indicated)

TORONTO, Aug. 3, 2017 /PRNewswire/ -- During the first quarter of fiscal 2018, the quarter ended June 30, 2017, Canaccord Genuity Group Inc. (Canaccord Genuity, the Company, TSX: CF) generated $199.8 million in revenue. Excluding significant items ⁽¹⁾, the Company recorded net income⁽³⁾ of $1.6 million or a net loss of $0.6 million attributable to common shareholders ⁽²⁾ (a loss per common share of $0.01). Including all significant items, on an IFRS basis, the Company recorded a net loss⁽³⁾ of $2.6 million or a net loss attributable to common shareholders ⁽²⁾ of $4.8 million (a loss per common share of $0.05).

"The progress we are making to adjust our business mix and increase contributions from our global wealth management businesses is evident in our first quarter results, and we look forward to further enhancing our earnings stability following the integration of our recently announced acquisition to grow our UK wealth management business," said Dan Daviau, President & CEO of Canaccord Genuity Group Inc. "While we remain cautious in our outlook for near-term in capital markets activities, we are encouraged by indications of broader and more sustainable economic growth, as we continue to improve our market position in all geographies where we operate."

First Quarter of Fiscal 2018 vs. First Quarter of Fiscal 2017

• Revenue of $199.8 million, a decrease of 3.1% or $6.4 million from $206.2 million
• Excluding significant items, expenses of $197.0 million, an increase of 1.6% or $3.1 million from $193.9 million ⁽¹⁾
• Expenses of $201.6 million, an increase of 2.8% or $5.4 million from $196.2 million
• Excluding significant items, loss per common share of $0.01 compared to earnings per common share of $0.05⁽¹⁾
• Excluding significant items, net income ⁽³⁾ of $1.6 million compared to net income⁽³⁾ of $8.1 million ⁽¹⁾
• Net loss⁽³⁾ of $2.6 million compared to net income⁽³⁾ of $7.5 million
• Loss per common share of $0.05 compared to earnings per common share of $0.04

First Quarter of Fiscal 2018 vs Fourth Quarter of Fiscal 2017

• Revenue of $199.8 million, a decrease of 26.4% or $71.9 million from $271.7 million
• Excluding significant items, expenses of $197.0 million, a decrease of 15.2% or $35.2 million from $232.2 million ⁽¹⁾
• Expenses of $201.6 million, a decrease of 14.0% or $32.7 million from $234.3 million
• Excluding significant items, loss per common share of $0.01 compared to earnings per common share of $0.27 ⁽¹⁾
• Excluding significant items, net income ⁽³⁾ of $1.6 million compared to net income⁽³⁾ of $32.7 million ⁽¹⁾
• Net loss⁽³⁾ of $2.6 million compared to net income⁽³⁾ of $31.0 million
• Loss per common share of $0.05 compared to earnings per common share of $0.26

Financial Condition at end of First Quarter Fiscal 2018 vs. Fourth Quarter Fiscal 2017

• Cash and cash equivalents balance of $521.7 million, a decrease of $156.1 million from $677.8 million
• Working capital of $467.5 million, a decrease of $21.0 million from $488.5 million
• Total shareholders' equity of $741.9 million, a decrease of $22.9 million from $764.8 million
• Book value per diluted common share of $4.91, a decrease of $0.17 from $5.08⁽⁴⁾
• On August 2, 2017, the Board of Directors approved a cash dividend of $0.01 per common share payable on September 15, 2017 with a record date of September 1, 2017.
• On August 2, 2017, the Board of Directors approved a cash dividend of $0.24281 per Series A Preferred Share payable on October 2, 2017 with a record date of September 15, 2017, and a cash dividend of $0.31206 per Series C Preferred Share payable on October 2, 2017 with a record date of September 15, 2017.

SUMMARY OF OPERATIONS

Corporate

• On May 5, 2017, Dvai Ghose was appointed to Head of Strategic Development for the Company. This appointment takes advantage of Dvai's exceptional analytical skills and almost three decades of global investment industry experience and perspective that he brings to his existing role as Global Head of Equity Research. As a member of the Global Operating Committee and a long-standing partner in our firm, Dvai is well suited to work closely with the global partners and executives responsible for setting the overall strategic direction of the Company, so that we can continue to drive innovation and efficiency while we look to maximize long-term performance across our operations and geographies.
• On June 1, 2017, the Company announced that the dividend rate on its Cumulative 5-Year Rate Reset First Preferred Shares, Series C (the "Series C Preferred Shares") for the period from July 1, 2017 to June 30, 2022 would be 4.993% per annum. 
• On June 16, 2017, the Company announced that the number of Series C Preferred Shares tendered for conversion into Cumulative Floating Rate First Preferred Shares, Series D (the "Series D Preferred Shares") did not meet the minimum required and, accordingly, no Series D Preferred Shares were issued.
• On July 5, 2017, the Company announced that through its UK & Europe based wealth management business, Canaccord Genuity Wealth Management ("CGWM (UK)"), it has agreed to acquire Hargreave Hale Limited ("Hargreave Hale"), a leading independent UK-based investment and wealth management business. Under the terms of the transaction, the Company will acquire 100% of Hargreave Hale for an initial consideration of £52.1 million (C$88.1 million) and additional contingent consideration of up to £27.5 million (C$46.5 million). The contingent consideration is structured to be payable over a period of up to three years, subject to the achievement of certain performance targets related to the retention and growth of client assets and revenues and an amount determined with reference to the fund management business. The initial consideration will be funded in part from a credit facility provided to CGWM (UK) by National Westminster Bank plc and HSBC Bank plc in the amount of £40.0 million (C$67.6 million). Additional contingent consideration, if paid, will be funded from the ongoing cash flow of the business.

Acquisition-related costs comprised of deal costs, transaction fees, and incentive-based payments subject to certain performance criteria are expected to be approximately £16.0 million (C$27.0 million) of which £8.0 million (C$13.5 million) is expected to be expensed at the time of closing, with the balance to be expensed as a significant item over a four-year measurement period. The Company expensed $2.2 million of acquisition-related costs for the three months ended June 30, 2017. 

The acquisition will be effected by a Scheme of Arrangement under the UK Companies Act 2006 and the closing of the acquisition is  subject to regulatory approval and approval by shareholders of Hargreave Hale and other customary closing conditions.  The Company has received irrevocable undertakings in favour of the transaction from shareholders of Hargreave Hale, representing 81.0% of shares outstanding.  The acquisition is expected to be completed prior to the end of the third quarter of fiscal 2018.

• On August 1, 2017, Canaccord Genuity Acquisition Corp. ("CGAC"), a newly organized special purpose acquisition corporation formed for the purpose of effecting a qualifying acquisition of one or more businesses, announced the closing of its initial public offering of $30.0 million of Class A Restricted Voting Units. The sponsor of CGAC is a wholly-owned subsidiary of the Company and owns an approximate 27% interest in CGAC.

Capital Markets

• Canaccord Genuity participated in 98 investment banking transactions globally, raising total proceeds of C$12.7 billion ⁽⁵⁾ during fiscal Q1/18
• Canaccord Genuity led or co-led 46 transactions globally, raising total proceeds of C$4.6 billion ⁽⁵⁾ during fiscal Q1/18
• Significant investment banking transactions for Canaccord Genuity during fiscal Q1/18 include:
• £267.7 million for HICL Infrastructure Company on LSE
• Two transactions totaling C$184.1 million for Pure Multi-Family REIT on TSX
• C$140.0 million for DHX Media Ltd. On TSX
• £90.0 million equity raise for Oxenwood Real Estate for its purchase of Ultrabox Logiostics Portfolio
• C$200.0 million for Cobalt27 Capital Corp. on TSXV
• AUD$151.0 million for Infigen Energy Limited on ASX
• AUD$115.9 million for Cooper Energy Limited on ASX
• £15.2 million for Eland Oil & Gas plc on AIM
• £39.0 million for Telit Communications PLC on AIM
• C$80.0 million for Brio Gold on TSX
• C$75.0 million for Aurora Cannabis on TSXV
• US$63.6 million IPO for Zymeworks on NYSE & TSX
• Two transactions totaling C$37.7 million for Seabridge Gold Inc. on TSX
• US$21.6 million for Synacor Inc. on Nasdaq
• US$42.9 million for Savara Inc. on Nasdaq
• C$46.2 million for Automotive Finco Corp. on TSXV
• C$35.2 million for Golden Leaf Holdings on CSE
• C$25.0 million private placement for Invictus MD Strategies Corp. on TSX
• C$21.8 million for Pro Real Estate Investment Trust on TSX
• US$16.4 million American Depositary Shares for Sequans Communications S.A. on NYSE
• US$12.0 million for ContraVir on Nasdaq
• AUD$15.0 million for Tawana Resources NL on ASX
• AUD$13.5 million initial public offering for Cann Group Limited on ASX
• AUD$12.3 million for Talga Resources Ltd. On ASX
• In Canada, Canaccord Genuity participated in raising $166.4 million for government and corporate bond issuances during fiscal Q1/18
• Canaccord Genuity generated advisory revenues of $18.9 million during fiscal Q1/18, a decrease of $20.5 million or 52.0% compared to the same quarter last year
• During fiscal Q1/18, significant M&A and advisory transactions included:
• DCC plc on the £219.0 million sale of DCC Environmental
• Savara Inc. on its merger with Mast Therapeutics Inc.
• SignUpGenius Inc. on its majority recapitalization by Providence Equity Partners
• Halt Medical Inc. on its sale to Acessa AssetCo LLC pursuant to §363 of the U.S. bankruptcy code
• Maxwell Technologies on its acquisition of Nesscap Energy
• DHX Media on its US$345.0 million acquisition of Peanuts and Strawberry Shortcake
• Sonoma Orthopedic Products Inc. on its sale to an undisclosed strategic party
• WiLan on its acquisition of VIZIYA
• Cinven on its €500.0 million acquisition of Chryso
• Growth Capital Partners on its investment in First Mile Limited
• Argus de la Presse on its disposal of Cision

Canaccord Genuity Wealth Management (Global)

• Globally, Canaccord Genuity Wealth Management generated $76.1 million in revenue in Q1/18
• Assets under administration in Canada and assets under management in the UK & Europe and Australia were $39.3 billion at the end of Q1/18⁽⁴⁾

Canaccord Genuity Wealth Management (North America)

• Canaccord Genuity Wealth Management (North America) generated $36.9 million in revenue and, after intersegment allocations and before taxes, recorded net income of $3.2 million in Q1/18
• Assets under administration in Canada were $12.7 billion as at June 30, 2017 a decrease of 4.3% from $13.2 billion at the end of the previous quarter and an increase of 29.1% from $9.8 billion at the end of fiscal Q1/17⁽⁴⁾
• Assets under management in Canada (discretionary) were $2.6 billion as at June 30, 2017, consistent with the previous quarter and an increase of 108.8% from $1.3 billion at the end of fiscal Q1/17⁽⁴⁾
• Canaccord Genuity Wealth Management had 135 Advisory Teams⁽⁶⁾ at the end of fiscal Q1/18, a decrease of six Advisory Teams from March 31, 2017 and a decrease of three from June 30, 2016

Canaccord Genuity Wealth Management (UK & Europe)

• Wealth management operations in the UK & Europe generated $38.0 million in revenue and, after intersegment allocations, and excluding significant items, recorded net income of $8.5 million before taxes in Q1/18⁽¹⁾
• Assets under management (discretionary and non-discretionary) were $25.8 billion (£15.3 billion) as at June 30, 2017, an increase of 5.0% from $24.5 billion (£14.7 billion) at the end of the previous quarter and an increase of 14.9% from $22.4 billion (£12.9 billion) at June 30, 2016 ^(4). In local currency (GBP), assets under management at June 30, 2017 increased by 4.2% compared to March 31, 2017 and 18.9% compared to June 30, 2016.

Non-IFRS Measures

The non-International Financial Reporting Standards (IFRS) measures presented include assets under administration, assets under management, book value per diluted common share and figures that exclude significant items. Significant items include restructuring costs, amortization of intangible assets acquired in connection with a business combination, impairment of goodwill and other assets, acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions,  gains or losses related to business disposals including recognition of realized translation gains on the disposal of foreign operations, as well as certain expense items, typically included in development costs, which are considered by management to reflect a singular charge of a non-operating nature. Book value per diluted common share is calculated as total common shareholders' equity adjusted for assumed proceeds from the exercise of options and warrants and conversion of convertible debentures divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options, warrants, and convertible debentures, as applicable, and adjusted for shares purchased under the NCIB and not yet cancelled and estimated forfeitures in respect of unvested share awards under share-based payment plans.

Management believes that these non-IFRS measures will allow for a better evaluation of the operating performance of the Company's business and facilitate meaningful comparison of results in the current period to those in prior periods and future periods. Figures that exclude significant items provide useful information by excluding certain items that may not be indicative of the Company's core operating results. A limitation of utilizing these figures that exclude significant items is that the IFRS accounting effects of these items do in fact reflect the underlying financial results of the Company's business; thus, these effects should not be ignored in evaluating and analyzing the Company's financial results. Therefore, management believes that the Company's IFRS measures of financial performance and the respective non-IFRS measures should be considered together. 

Selected financial information excluding significant items ⁽¹⁾

Fellow Shareholders:

During the first quarter of our 2018 fiscal year, continued uncertainty remained an important feature in global capital markets. In the UK & Europe, uncertainty over the political backdrop and the future path of monetary policy led to a volatile quarter despite positive returns amid stronger corporate earnings. US Equities advanced over the quarter and the S&P 500 recorded a total return of 3.1%, but activity levels were lower amid uncertainty that the US administration will be able to deliver on its fiscally expansive policies, and small and mid-cap equities underperformed large caps over the period. Canadian equity markets were impacted by concerns over energy and commodity markets, as well as housing market risks.

Canaccord Genuity Group Inc. earned total revenue of $199.8 million for the first fiscal quarter, a decrease of 3.1% compared to the same period a year ago. While the environment did weigh on the results this quarter, we continued to make excellent progress to deliver on our strategy of increasing contributions from our global wealth management operations and focusing on our initiatives to improve stability across our operations.

Executing on our strategy: Growing wealth management to stabilize headline performance

At the end of our first fiscal quarter, assets under management and administration in our global wealth management businesses grew to $39.3 billion, an improvement of 19.2% compared to one year ago.

Our wealth management business in the UK & Europe delivered another strong quarterly performance, with a year-over-year revenue increase of 14.4%. Excluding significant items, this business delivered $8.5 million of net income and a pre-tax profit margin of 22.2%. At the end of the first quarter, assets under management totalled $25.8 billion, a year-over-year increase of 14.9%. When measured in local currency, assets under management increased by 18.9% compared to a year ago.

In early July, we announced that this division has agreed to acquire Hargreave Hale, a leading independent UK-based investment and wealth management business. With this development, Canaccord Genuity Wealth Management is poised to become a top 10 wealth management business in the region by assets, with even stronger growth potential from a base of £22 billion. The acquisition is subject to regulatory approval and other customary closing conditions and is expected to be completed prior to the end of our third fiscal quarter. As a result of this development, the Company recorded $2.2 million of acquisition related costs.  Along with the senior management of Hargreave Hale, we are confident that bringing together our shared strengths and complementary differences will allow us to unlock some larger opportunities for both businesses and deliver enhanced value for our clients and shareholders and we expect that the business combination will be immediately accretive.

Our Canadian wealth management business also delivered a significant improvement in profitability for the first fiscal quarter. Excluding significant items, this business contributed net income of $3.2 million, or a pre-tax profit margin improvement of 7.4 percentage points compared to the first quarter of our last fiscal year. This improvement was driven primarily by our efforts to increase scale in this business, as revenues generated from the new assets that we have added to our platform are being more wholly reflected in our results. Excluding significant items, total expenses as a percentage of revenue in this business decreased by 7.7 percentage points, a measure we expect to continually improve as we achieve greater scale in this operation. At the end of the first fiscal quarter, assets under administration and management in our Canadian wealth management business were $12.7 billion, an improvement of 29.1% compared to the same period last year. Notably, discretionary assets under management in this business have increased by 108.8% compared to the same period last year.  Our recruiting efforts in this business remain on track and we continue to attract interest from a solid pipeline of high quality investment advisors.

Global Capital Markets

The robust market backdrop that characterized our fourth fiscal quarter was replaced with more subdued activity levels in global capital markets for our first quarter of fiscal 2018. That said, we supported our clients when market opportunities presented. During the first quarter of fiscal 2018, Canaccord Genuity participated in 98 investment banking transactions to raise proceeds of $12.7 billion for growth companies.

Revenue for our global capital markets business was $121.8 million, a decrease of 13.4% compared to the first quarter of our last fiscal year, primarily on lower advisory fees revenue. While still below historic levels, we experienced a modest improvement in revenue generated from investment banking activities from our operations in Canada, US and the UK & Europe. In Canada, investment banking revenue increased by 28.7% compared to the first quarter of last year. Investment banking revenues in our US and our UK, Europe & Dubai operations increased by 16.8% and 18.4% respectively. These gains were offset by a decrease in Australia, the first period of subdued activity following two years of strong gains, as investors transitioned away from small and mid-cap stocks.

While our Canadian capital markets business achieved profitability during the quarter, the year-over-year decline in advisory revenues was most pronounced for this business, largely due to an exceptionally strong quarter in the prior year. Global trading revenue was down by $1.7 million compared to the same quarter last year, primarily due to lower activity in our UK, Europe & Dubai operation. This result was partially offset by our US trading operation, which delivered 5.1% higher revenue on a year-over-year basis, a testament to this team's efforts to attract increased client flows and grow our specialty trading capability, despite reduced market activity arising from generally lower market volatility.

While fiscal and policy regulation remains uncertain, ample liquidity in emerging and developed markets gives us confidence in an improving backdrop for new listings and equity capital markets activities throughout the coming quarters.  Additionally, we expect that low volatility should support a healthy M&A pipeline.

Innovating to support a vibrant marketplace for growth companies

Subsequent to the end of the quarter, Canaccord Genuity Acquisition Corp., a special purpose acquisition company (SPAC) in Canada was established, for which we successfully raised $30 million in funding. This development allows us to support high-potential growth companies gain access to investment capital and a method by which to go public, while simultaneously offering access to a broadly desirable investment vehicle to our network of retail investors across Canada. By leveraging our core capability as a leader in raising capital for growth companies, we are very well positioned to identify compelling investment opportunities, as we contribute to a vibrant marketplace for growth companies in Canada. I look forward to updating you on our progress when we introduce a qualifying acquisition.

Significant opportunities to expand long-term capability for our business, in any market environment

We have consistently noted that variability of results is an inevitable feature of our global capital markets business, and therefore we focus on operating our business for long-term success and stability. 

Since we began our restructuring and cost reduction activities in the third quarter of fiscal 2016, we have continued to manage our expenses carefully throughout various market backdrops and we have improved operational efficiencies across many areas of our business. We continue to be well capitalized for investment in our key priorities, with working capital of $467.5 million and cash & cash equivalents of $521.7 million at June 30. I am also pleased to report that our Board of Directors has approved a cash dividend of $0.01 per share for the quarter.

To date, I am pleased with the steady progress we are making to adjust our business mix and strengthen our market position across our operations. While we remain cautious in the near term, we are encouraged by indications of an improving global economy, with potential for broader and more sustainable growth than we have seen in recent years. The many talented professionals that we have recruited and retained across our global capital markets operations have remained active throughout the summer months, working hard to strengthen our market position so that we can deliver for our clients when market conditions are favourable. In our wealth management operations, we continue to focus on growing assets under management and increasing contributions from fee-based accounts, which will improve net income contributions from this segment and continue to enhance our longer-term earnings stability.

Kind regards,

Dan Daviau
President & CEO
Canaccord Genuity Group Inc.

ACCESS TO QUARTERLY RESULTS INFORMATION 

Interested investors, the media and others may review this quarterly earnings release and supplementary financial information at http://www.canaccordgenuitygroup.com/EN/IR/FinReports/Pages/default.aspx

CONFERENCE CALL AND WEBCAST PRESENTATION

Interested parties are invited to listen to Canaccord Genuity's fiscal first quarter 2018 results conference call, via live webcast or a toll free number. The conference call is scheduled for Thursday, August 3, 2017, 2017 at 5:00 a.m. Pacific time, 8:00 a.m. Eastern time, 1:00 p.m. UK time, 8:00 p.m. China Standard Time, and 10:00 p.m. Australia EST. During the call, senior executives will comment on the results and respond to questions from analysts and institutional investors.

The conference call may be accessed live and archived on a listen-only basis at: http://www.canaccordgenuitygroup.com/EN/NewsEvents/Pages/Events.aspx

Analysts and institutional investors can call in via telephone at:

• 647-427-7450 (within Toronto)
• 1-888-231-8191 (toll free outside Toronto)
• 0-800-051-7107 (toll free from the United Kingdom)
• 0-800-91-7449 (Toll free from France)
• 10-800-714-1191 (toll free from Northern China)
• 10-800-140-1195 (toll free from Southern China)
• 1-800-287-011 (toll free from Australia)
• 800-017-8071 (toll free from United Arab Emirates)

Please ask to participate in the Canaccord Genuity Group Inc. Q1/18 results call.  If a passcode is requested, please use 22448817.

A replay of the conference call will be made available from approximately two hours after the live call on August 3, 2017, until September 17, 2017 at 416-849-0833 or 1-855-859-2056 by entering passcode 22448817 followed by the (#) key.

ABOUT CANACCORD GENUITY GROUP INC.:
Through its principal subsidiaries, Canaccord Genuity Group Inc. (the Company) is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and capital markets. Since its establishment in 1950, the Company has been driven by an unwavering commitment to building lasting client relationships. We achieve this by generating value for our individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. The Company has offices in 10 countries worldwide, including wealth management offices located in Canada, the UK, Guernsey, Jersey, the Isle of Man and Australia. Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, France, Ireland, Hong Kong, China, Australia and Dubai. To us there are no foreign markets.^TM

Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX. Canaccord Genuity Series A Preferred Shares are listed on the TSX under the symbol CF.PR.A. Canaccord Genuity Series C Preferred Shares are listed on the TSX under the symbol CF.PR.C.

FOR FURTHER INFORMATION, CONTACT:

Investor and media relations inquiries:
Christina Marinoff
Vice President, Investor Relations and Communications
Phone: 416-687-5507
Email: christina.marinoff@canaccord.com  

www.canaccordgenuitygroup.com

______________________________
¹ Figures excluding significant items are non-IFRS measures.  See Non-IFRS measures on pages 4.
² Net (loss) income attributable to common shareholders is calculated as the net (loss) income adjusted for non-controlling interests and preferred share dividends.
³ Before non-controlling interests and preferred share dividends.
⁴ See Non-IFRS Measures on pages 4
⁵ Transactions over $1.5 million. Internally sourced information.
⁶ Advisory Teams are normally comprised of one or more Investment Advisors (IAs) and their assistants and associates, who together manage a shared set of client accounts. Advisory Teams that are led by, or only include, an IA who has been licensed for less than three years are not included in our Advisory Team count, as it typically takes a new IA approximately three years to build an average-sized book of business. 

Investor and media relations inquiries: Christina Marinoff, Vice President, Investor Relations and Communications, Phone: 416-687-5507, Email: christina.marinoff@canaccord.com, www.canaccordgenuitygroup.com

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